City of London: November 2024 trust update

• Job Curtis is one of the most experienced UK equity income investors and began managing this investment trust in 1991

• The trust has increased the dividend it’s paid to investors for 58 years

• The trust aims to provide long-term growth in income and capital by mainly investing in large UK companies

How it fits in a portfolio

City of London Investment Trust aims to provide long-term growth in income and capital by mainly investing in large UK companies. Job Curtis looks for companies that generate plenty of cash to pay dividends and are conservatively run, in his view. This trust could form part of an income portfolio or a broader portfolio looking to add investment in larger UK companies.

When investing in closed-ended funds you should be aware the trust can trade at a discount or premium to net asset value (NAV).

Manager

Job Curtis has managed City of London Investment Trust since July 1991. This length of tenure is rare to see. He began his career in 1983 as a graduate trainee at Grieveson Grant stockbrokers, before joining Cornhill Insurance as an assistant fund manager from 1985 to 1987 and then Touche Remnant as a unit trust and investment trust manager. Following Henderson’s acquisition of Touche Remnant he subsequently joined Henderson in 1992. He works within a well-resourced and experienced team which includes highly regarded income investors such as Alex Crooke and Ben Lofthouse.

David Smith is deputy manager of the trust. Smith has managed the Henderson High Income Trust since 2013, the UK portfolio of The Bankers Investment Trust since 2017 and has worked with Job Curtis for a number of years.

Process

The trust invests in good quality, well-managed companies, which can be bought at a reasonable share price and contribute to the trust’s dividend. Job Curtis believes companies with sustainable and rising dividends will see their share prices grow over time. He likes larger, more stable companies which often have multinational operations that are robust enough to weather economic storms and still pay dividends. This provides UK investors with exposure to global growth through the trust’s overseas revenues.

Curtis mainly invests in UK companies, although he can invest up to 20% overseas when he finds good opportunities. As of June 2024, 10% of the trust was invested in companies listed overseas, down from 15% a year earlier. This is the result of the manager’s view that UK shares offered better value than their overseas equivalents, with most of this being invested in larger companies within the UK.

Over the last year, Curtis added general insurer Aviva to the trust’s holdings on the basis that it has scope to grow both volumes and margins and generate lots of cash. The trust’s investment in wealth manager St James’ Place was reduced in size following the profit warning and dividend cut.

The trust also borrows money to invest with the intention of increasing returns (sometimes known as gearing) which increases risk. At the end of the trust's last financial year in June 2024, gearing stood at 7.1%, up from 6.2% a year earlier. The manager can also use derivatives, which if used adds risk.

Culture

Janus Henderson is a large investment firm with offices all over the world. It was formed in 2017 from the merger of two long-established groups – US-based Janus Capital Group and Henderson Global Investors.

It values experience and sharing knowledge and ideas between investment teams is an important part of the culture. Managers have the flexibility to tap into the wider group’s resources for ideas and insights, but also have the freedom to do their own research and form their own views without having a ‘house view’ placed on them.

ESG Integration

Janus Henderson aims to be a responsible steward of investors’ money, and Environment Social and Governance (ESG) is an important part of this. All fund managers have access to ESG scoring models and customised ESG research, but the firm believes ESG considerations should go beyond examining numbers. Company site visits, speaking to workers and questioning company management are just some of the ways fund managers are expected to actively assess a company’s ESG credentials.

Investment teams across Janus Henderson actively engage with the companies they invest in and the firm’s Governance and Responsible Investing team, which has existed since 2010, provides centralised support on voting, engagement and ESG research.

When it comes to voting, Janus Henderson has a Proxy Voting Committee, which is responsible for establishing the firm’s position on major voting issues and creating guidelines overseeing the voting process. The Committee is comprised of representatives from various business areas, including portfolio management, corporate governance, accounting, legal and compliance. The firm’s full proxy voting history is published annually, fund-by-fund, although no rationale is provided. There is more detail on voting and engagement, including case studies, in the firm’s annual ESG Company Engagement & Voting Review report.

We feel ESG is considered when the manager researches companies, though this is not a specialist responsible or sustainably invested fund.

Cost

The ongoing annual charge over the trust’s financial year to the end of June 2024 was 0.37%. Investors should refer to the latest annual reports and accounts, and Key Information Document for details of the risks and charging structure. If held in a SIPP or ISA, the HL platform fee of 0.45% per annum (capped at £200 per annum for a SIPP and £45 for an ISA) also applies. Our platform fee doesn’t apply if held in a Fund and Share Account or in a Junior ISA.

Part or all of the annual charge is taken from capital rather than income generated. This could result in a higher dividend yield but can limit capital growth.

Performance

The trust has performed strongly over the manager’s tenure which began in July 1991 and it’s ahead of the FTSE All Share index* over that period. In recent years they have made effective use of revenue reserves built up in the good times, meaning the trust continued to increase the dividends paid to investors through the difficult coronavirus period. This was in spite of many UK companies cutting or suspending their dividends amid the uncertainty.

In the trust’s last financial year, the dividend paid to investors increased by 0.5p to 20.6p per share, a rise of 2.5% which was fully covered by its revenues. This extends the trust’s record as the investment company that has increased its dividend each year for the longest period – now standing at 58 years. Past performance isn’t a guide to the future. Dividends are variable and not guaranteed.

Over the trust's last financial year to the end of June 2024, the trust’s net asset value (NAV) rose by 15.6% with the share price rising by 11.3%. This compares with a return of 13.0% for the FTSE All Share index over the same period, and a 12.6% gain for the AIC UK Equity Income sector.

Among the biggest contributors to performance over the year were listed private equity business 3i, defence business BAE Systems and bank NatWest. Key detractors from relative returns over the year included wealth manager St James’ Place as well as the trust’s underweight positions in engine manufacturer Rolls Royce and energy business, Shell.

At the time of writing the trust trades at a discount of 0.67%, which compares to a 12 month average discount of 1.18%, and has a dividend yield of 4.80%. Remember yields are variable and aren’t a reliable indicator of future income. All investments and any income they produce can fall as well as rise in value, so investors could get back less than they invest.